“Private credit is not merely growing; it is acquiring the plumbing of the broader capital markets it once positioned itself against. The asset class that grew up defining itself against the banks is now, in its largest transactions, writing the kind of paper the banks used to write.”
In the second quarter of 2026, two of the largest names in private credit assembled one of the biggest financings the asset class has ever produced, and the market’s benchmark keepers promptly excluded it from the tally. Apollo and Blackstone led a roughly $36 billion investment-grade structured notes financing to purchase and then lease advanced computing chips to an artificial intelligence developer, a transaction that LCD kept out of its direct lending volume precisely because it was structured as investment-grade notes rather than the unrated, floating-rate bilateral or club loans that define the asset class.1
The structure is a study in how far private credit has traveled from its origins. The financing was divided into roughly $6 billion of super-senior notes carrying price talk of Treasuries plus 100 basis points, $25 billion of first-lien senior notes talked at an all-in yield of 5.50 to 5.75%, and $4.5 billion of second-lien notes with a fixed 8.5% coupon.1 A special-purpose vehicle would acquire the chips and lease them to the developer, with a chip supplier providing residual value support to backstop the senior tranches if lease payments fell short.1 This is the vocabulary of structured and asset-backed finance, not of middle market direct lending.
The Rated, Investment-Grade Turn
The chip financing is the most conspicuous example of a broader migration. KBRA reported that through 2025 it had rated more than $64 billion of private lending to global, predominantly large-cap investment-grade corporate entities, and expects both continued evolution in investment structures and further growth in this kind of lending in 2026.2 Private credit managers are no longer content to occupy the space below the banks; they are moving up the credit spectrum and into the rated, investment-grade territory that banks and insurers have historically owned.
The plumbing that channels institutional and insurance capital into these strategies has matured in parallel. KBRA’s rated landscape now spans more than 400 fund finance transactions, nearly 300 rated note feeders and collateralized fund obligations, and over 275 transactions backed by asset-based collateral.2 Rated note feeders and collateralized fund obligations had what KBRA called a breakout year in 2025, achieving record annual issuance, and the agency expects both to keep growing on the strength of ratings stability and structural refinement.2 These are the vehicles that let a life insurer or a pension hold private credit in a capital efficient, rated wrapper — the connective tissue of convergence.
Asset-Based Finance and the Widening Collateral Set
Convergence is not only about moving up in credit quality; it is also about moving across in collateral. KBRA flagged the increased presence of asset-based finance collateral as one of the defining sources of rising complexity in the rated private credit universe, alongside retail investors, new geographies, and longer-duration funds.2 The chip-lease financing is asset-based finance in all but name: the credit rests on the residual value of physical equipment and a contractual lease stream, not on a corporate borrower’s free cash flow.
The same instinct is visible in more conventional deals. A take-private financing in the restaurant sector during the quarter included $725 million of preferred equity carrying a 12% all-in return, split between 10% payment-in-kind and 2% cash, with a minimum multiple on invested capital of 1.6 times, while a separate bridge facility was expected to migrate into a whole-business securitization rather than remain on a bank balance sheet.1 Preferred equity, payment-in-kind toggles, whole-business securitization: the toolkit of the modern private credit manager increasingly resembles that of a structured finance desk.
For the lenders and their counsel, the collateral shift changes the monitoring problem. A cash-flow loan is underwritten to an income statement and a covenant package; an asset-based structure is underwritten to the value and durability of a specific pool of assets, whether receivables, equipment or contractual cash flows, and to the mechanics of the special-purpose vehicle that holds them. As asset-based collateral proliferates across rated private credit vehicles, the diligence, the documentation and the surveillance all migrate toward the disciplines of structured finance, and KBRA has been explicit that this rising complexity will widen the performance gap between managers equipped to underwrite it and those who are not.2
The Banks Are Financing the Machine
The convergence runs in both directions, and the banking system is a willing counterparty. The Federal Reserve’s April 2026 survey found banks reporting stronger demand across all categories of loans to nondepository financial institutions, with significant net shares citing stronger demand from private equity funds in particular.3 Banks pointed to the increased liquidity needs of these nonbank borrowers and to borrowing shifting toward them as reasons for the stronger demand.3 Even as banks tightened the terms on that lending, the flow of leverage from regulated institutions into the private credit complex continued.
The scale of what is being financed is easy to underappreciate. The Cliffwater Direct Lending Index alone covers roughly $549 billion of directly originated middle-market loans, a figure that captures only the traditional core of an asset class now reaching into investment-grade corporate lending, equipment leasing, and structured notes.4 The question for the ecosystem is no longer whether private credit will converge with structured and investment-grade finance, but how the risk that migrates across that boundary will be priced, rated, and monitored.
The Retail and Retirement Frontier
Convergence is also pulling private credit toward the retail investor and, potentially, the retirement account. At the start of the second quarter, the U.S. Department of Labor advanced a proposal that would move private credit assets a step closer to inclusion in defined-contribution retirement portfolios, with proponents emphasizing benefits for savers alongside safeguards against imprudent lending.1 The timing was awkward, arriving as some of the same retail vehicles targeted by the plan were fielding elevated redemption requests, but the direction is unmistakable: the asset class is being packaged for a far broader base of capital than the institutional investors who built it.1
The secondary and continuation-vehicle machinery reinforces the point. The assembly of a $1.7 billion continuation vehicle during the quarter to acquire more than 300 first-lien loans, along with one bank’s report of trading roughly $2 billion of private credit loans by mid-May, show an asset class building the liquidity infrastructure that public markets take for granted.1 Each of these developments, from rated wrappers and structured notes to securitized bridges, retail packaging, and secondary liquidity, is a thread in the same fabric. Private credit is not merely growing; it is acquiring the plumbing of the broader capital markets it once positioned itself against.
Conclusion
The $36 billion chip lease will be remembered less for its size than for what it signaled: that the boundary between private credit and the rest of structured finance has become porous enough to walk through. For investment bankers, the convergence opens a new set of mandates in structuring and placement. For legal and structuring teams, it imports the complexity of securitization, residual-value support, and rated feeders into deals that once fit on a single term sheet. For insurers and their regulators, it raises the stakes on how rated wrappers translate real economic risk into capital treatment. The asset class that grew up defining itself against the banks is now, in its largest transactions, writing the kind of paper the banks used to write. The convergence trade is no longer a forecast. It is the business. •
1Latour, Abby, “Q2 US Private Credit Wrap: Software under scrutiny as market recalibrates,” Pitchbook LCD, July 1, 2026.
2“KBRA Releases Research – Private Credit: 2026 Outlook,” KBRA, Jan. 21, 2026.
3“Senior Loan Officer Opinion Survey on Bank Lending Practices,” Board of Governors of the Federal Reserve System, May 4, 2026.
4 “Senior Loan Officer Opinion Survey on Bank Lending Practices,” PR Newswire, Mar. 31, 2026.
Lisa H. Rafter is publisher of ABF Journal.